Levying A Line Of Credit

What if your judgment debtor has a line of credit
(LOC), and you have the Sheriff garnish their bank
account(s); will you eventually recover not only what
is in their account(s), but also recover up to the
credit-limit of their LOC? How would their LOC, either
the outstanding balance, or its potential credit limit;
affect what is available to you in the debtor's savings
and checking accounts?

One of many judgment-related articles: I am a judgment broker,
not a
lawyer, and this article is my opinion based on my
experience, please consult with a lawyer if you need
legal advice.

There is case law in the Eighth Circuit, that says if a
LOC is automatically attached to a checking account, it
means that checks will be honored by that LOC without
human intervention of a loan officer, then that LOC
must be used to pay a levy on that account. Very few
banks work in this way, especially after a certain appeal
court case's ruling on that law.

While few banks would tap a customer's LOC in response
to a court garnishment, occasionally they do. In the
case of Southwestern Glass Company, Inc. v. The Bank of
Arkansas, N.A., in the Eighth Circuit U.S. Court of
Appeals; the court ruled that the bank was liable for
over $500,000, because they failed to attach the
debtor's LOC.

At least in Missouri, Nebraska, and Arkansas; are
within the Eighth Circuit and are subject to this
ruling. The Bank of Arkansas was found liable because
the LOC was linked automatically to the customer's
direct deposit account.
Because the customer wrote a NSF check, and the check
was automatically covered by the LOC; the appellate
court held that the garnishment of the LOC should be
treated the same as the customer's checking account.
Should you find your bank will not touch the debtor
customer's account (that is linked to a LOC), consult
with an attorney; if you wish to proceed against the bank.

In my opinion, LOCs should not be automatically linked to
a direct deposit account. As long as a loan officer's
approval is required before payment of the item, no
case law exists, stating that a LOC is subject to
a garnishment.

Why there are any possible lien
rights to an LOC at all, is in
the legal language of every loan document that every
bank uses, and is similar to: "As security for this
loan, in addition to any pledged collateral, borrower
also pledges the contents of any deposit account(s)
with this institution, up to and including the total
outstanding balance on this note".